To the Moon and Back: Former Speculative Stock Darlings Are Crumbling

Sometimes, stock traders catch a rocket ship and ride into outer space. They trumpet these success stories on social media, making it seem like they’re just hitting one home run after another. Of course, they’re omitting the failures that wiped out their trading accounts.

I’m not even referring to meme stocks here, though Bed Bath & Beyond could certainly be cited as a poster child of pump-and-dumps. Really, though, I’m talking about entire sectors of the stock market that captured the imaginations – and the investable capital, unfortunately – of overeager traders.

Among the most painful of speculative bets gone wrong are cannabis stocks. Remember Tilray, the Canadian cannabis producer that everybody loved so much in 2018? Alarmingly, Tilray stock soared from $24 to $148 in a few months, only to cough up those gains and more. As I’m writing this, Tilray stock trades for $1.60 per share.

Folks who bought during the hype phase didn’t even get the consolation prize of dividend payments, as Tilray stock doesn’t pay dividends. That’s not unusual, as speculative stocks often forgo consistent yield in favor of hyper-growth dreams.

Electric vehicle start-ups comprise another group of high flyers that, in many instances, crash-landed after the buying frenzy subsided. Nikola stock is a prominent example, as it surged to $65 on the premise that battery- and/or hydrogen-powered trucks would become commonplace in short order.

Courtesy: Yahoo Finance

Here’s where Nikola stock is at, as of this writing. It’s far below its price when Nikola stock went public through a reverse merger; the likelihood of long-term investors recouping their losses is minuscule, in my humble opinion.

Even more bubble-icious was Lordstown Motors stock, which bears the ticker symbol “RIDE.” It’s been a ride, for sure, as the Lordstown Motors share price catapulted to $435 before plunging to $2 and change. The outlook probably won’t improve from here, as Lordstown Motors recently filed for bankruptcy.

And whatever happened to those app-based, direct-to-consumer insurance start-ups that were supposed to upend conventional insurance giants? Go find the long-term stock charts of Lemonade and Root, and you’ll see the not-so-happy ending to those stories.

Courtesy: @alifarhat79

Indeed, the vast auction house of the stock market in 2023 is littered not with ticker tape, but with the corpses of once-favored names like Clover Health, ContextLogic, and Vinco Ventures. Heck, just the electric-vehicle fiascos undoubtedly wiped out billions of dollars’ worth of investors’ wealth.

Today, the bubble is in generative artificial intelligence. It’s not popular to say that, but then, it’s never popular to declare a bubble when the market is in the middle of one.

I’m certainly not suggesting that anyone should short-sell NVIDIA stock or anything like that. NVIDIA is heavily favored now because of the company’s status as a provider of hardware components used to power AI applications. It’s an important company, though its stock shares are richly valued at the moment.

Yet, valuations don’t determine the short-term trajectory of asset prices. The weighing machine of the stock market will always have its reckoning in the long term, but short-leaning investors can easily get wiped out before high flyers come back down to earth.

The point is, it requires effort and vigilance to avoid getting caught in the hype trap. Always use your common sense, consider market sectors that aren’t on the front page of the mainstream press but probably will be someday, and remember that if everybody’s on one side of a boat, that boat is very likely to tip over.